It hit me when I was reading an article about Italy “refinancing” its debt by selling bonds. Bonds are debt.
The definition of a Ponzi Scheme, as I’m sure we all know ever since Madoff ran away with $50 billion that never existed, is paying investors off with money from other investors.
In financial newspapers and other smart guy publications with articles written by people with $100,000 MBA’s that aren’t worth 50 cents, they’ll call it refinancing, or restructuring, or recombobulating, or whatever. Doesn’t make a difference. When a country like Italy sells bonds in order to pay off other maturing bonds, they are by definition engaging in a Ponzi Scheme. They are taking money from new investors – the buyers of the new bonds – to pay off old investors – the holders of the old bonds.
The reason the financial magazines and websites and newspapers call it “refinancing” is that they don’t want us to freak out and pull our money out of Europe by calling it what it is, because this would mean the reset button would have to pushed all the sooner.
It’s not just Europe. America pays off interest it owes to China and Japan with money that it borrows from somewhere else. It pays off old treasury bills by selling new ones. There’s no real genius to it.
Why can’t they pay off with real money? Because they’re busy using that to blow up rocks in Afghanistan and Iraq with billion dollar precision missiles.
The entire Western economy is nothing but selling bonds to pay off bonds. Paying off investors with other investors’ money. The clock stops when they can no longer attract new investors.
That’s when 1.5 quadrillion dollars in global derivatives gets wiped off the books in one shot.
Stay safe out there.
The Jewish Libertarian 
When will Israel do the halachic thing and go on a precious metals standard. This whole finance system is pure usury and is condemned in all forms by the torah. Usury is a grave sin and all that the west is doing is creating new money on top of old money. Essentially creating something out of nothing and burdening people with inflation.
Abolish the Bank of Israel.
Damn straight!
If any one nation goes to a metals backed currency actually redeemable for gold or precious metals their currency will disappear overnight. You cannot do it in isolation or at least without draconian defense measures like fixed exchange rates. The best bet is for a coordinated system among nation with protections. Roosevelt reset the value of the currency from $20/oz of gold to $35. This was of course only done after confiscation of all public gold. So the US government bought it at $20/oz and then reset it. This was actually fraud and theft.
A coordinated backing of currencies could work with legal agreements more or less prohibiting revaluations. Although it is impossible it is one of the theoretical aspects of actual gold currencies and coins that I like. If we used actual gold, China could not fix it’s currency. There is no way they would give us 6 oz’s of real gold for one of ours…the only difference being an eagle and a panda on the gold. You could still get more “stuff” in China for the gold but the exchange rates and values of money would never change.
Abolish all central banks, BTW. They fund the ponzi schemes.
ummmm hate to be the economist here…Ponzi took money and made up returns and issued profits to old investors with new investors money. The whole thing was never legitimate and was always going to collapse.
If I borrow a dollar from baron to pay a dollar back to Gidon and then borrow another dollar from natasha to pay back baron then the money has still stayed the same. If I didn’t have to cope with my exposure to interest rates, one could do this indefinitly with no economic cost to themself. It’s bad business but its not a ponzi scheme.
Bonds aren’t debt. When you buy a bond you aren’t buying any sort of credit derivative. Paying debts by selling bonds is as economically sound as paying off debts with gold.
THe US Social Security system, however, is a bona fide ponzi scheme.
What you’re saying doesn’t make any sense. You pay interest on bond. Bonds are not gold. Italy’s not borrowing a dollar to pay back Alix a dollar. Italy’s borrowing a dollar from baron, and then italy owes baron $1.50, so italy borrows $1.50 from you and pays back baron, then Italy owes you $2, so italy borrows $2 from Gidon to pay you back, but now they owe Gidon $2.50, so they borrow it from me, then they owe me $3, so they borrow it from Tzivie, who they owe $3.50, so they borrow that…etc.
It’s a death spiral. Bonds have yields.
Well said, Rafi. Both of you are correct in some points. The reason I tilt toward what you say, Rafi is that no debt actually gets paid with real money…money based on goods and services. The debt pile gets only larger because not only is the old debt just rolled but massive new debt is added. It too will have to be rolled until there is no one left to buy it. That is where central banks step in and create money by buying the government bonds. The US Fed bought about 70% of the treasury notes in 2011. That is a defacto monetization of debt and devaluation of the dollar.
In an accounting sense, Alix is correct but that is a narrow view of the situation. He is also spot on about the US Social Security scheme. It is in fact a very real ponzi scheme based on ever larger more prosperous generations paying the generation preceding them. It will fail as all ponzi’s do.